All About Getting A Heloc: Home Equity Line Of Credit

All About Getting A Heloc: Home Equity Line Of Credit

When refinancing your home, a newer trend is the option to put a portion of those funds into a HELOC (Home Equity Line of Credit). A HELOC provides greater flexibility in accessing funds – but it is important to determine if it’s the right choice for your financial situation.

When refinancing you can utilize up to 80% of the value of your home (known as loan to value, or LTV), but with a HELOC you are limited to only 65% of the home’s value.

Another example would be if you have an existing mortgage for $300,000 on your home valued at $750,000. If you keep this existing debt in a mortgage product, you can still unlock up to 80% LTV with the HELOC, as the HELOC funds are not more than the initial 65% LTV, for example:

Typically, with a HELOC, you pay a higher interest rate for the advantage of having an “open” term. The open term means you can draw the funds or pay off the funds at any time without encountering a penalty.

Because a HELOC has a higher interest rate, it would be cost effective to place your current mortgage debt into another fixed mortgage product (fixed or variable, depending on your own preference), while utilizing your equity through a HELOC.

The benefits to having a HELOC are endless, whether you want the ability to invest the funds for a high return, use the funds for a down payment on a second residence, have funds available to use for your child’s college or university education, or assist with a child’s down payment on their first home.

HELOCs are becoming more popular with the new influx of tighter mortgage restrictions. Traditionally, most lenders allowed an equity withdrawal of up to $200,000 on any refinance. But with new rules and regulations, lenders have tightened the gap and are now releasing fewer funds, if any extra at all. If they are going to release funds they also will want to know what exactly the funds are for. This means the advantage of a HELOC is that you can do as you please with your money – though it comes at that slightly higher interest rate.

Lowest Rates* in Canada

Lowest Rates* in Canada

Term

Our Rate

Bank Rate

3 Year Fixed

3.44%

3.49%

5 Year Variable

2.85%

3.45%

5 Year Fixed

3.59%

3.79%

November 19, 2018

Updated:August 01, 2017

Rates may vary between geographic regions and the posted rates on this website may not be available in your area. Please contact your local CENTUM office for more details.